30 October 2009

Asian and European markets were
higher overnight .Oil has a $79 handle and Gold is down a few dollars as the
trading day begins. U.S. stocks look to open slightly lower after yesterday’s
large gain.
*****

(WSJ) Real (inflation-adjusted)
consumer spending dropped a seasonally adjusted 0.6% in September after a 1%
gain in August, the government said. It was the largest decline in spending
since December. Meanwhile, real disposable incomes after taxes fell a
seasonally adjusted 0.1%, the fourth decline in a row.
*****

The S&P 500 closed at 1057 on
September 30. At 10:30 AM on October 30 the S&P 500 is at 1057, strange but
true.
*****

2.16% of the 3.5% rise in 3rd
quarter GDP was auto output (1.66%) and residential investment (0.50%). Since
Cash for Clunkers and the $8000 new home tax credit were large parts of that
improvement the markets are taking a second look. At Noon the DJIA was down 200
points.
*****

We sold our SH
trade for plus 60 pennies. We were a bit too early yesterday on our buy
yesterday but a 2% off yesterday’s low suggested a move to cash on the trade.
And it was a profit.

*****

It looks like Carl Icahn and Goldman Sachs are going to wind up owning CIT. Goldman is like all the small town bankers in the Depression
whose banks didn’t fail. Those banks wounds up owning the whole county in which
they were situated.
*****

European shares ended a negative
month on a down note, pulling back as commodity-sector shares weakened and then
extending losses into the close as investors showed renewed reluctance to take
on risk. German ended down 3% and other countries lost 2%.
*****

In some of our larger accounts we switched our SH trade
moneys into a long dollar position by buying
the long Dollar ETF (UUP). The dollar is at $1.50 to the euro down 30% this
year. If stocks tank we think the dollar
will rally as money flows to confidence, which is still the U.S.

(UUP: The investment seeks to track
the price and yield performance, before fees and expenses, of the Deutsche Bank
Long US Dollar Futures index. The index is comprised solely of long futures
contracts. The futures contract is designed to replicate the performance of
being long the US Dollar against the Euro, Japanese Yen, British Pound,
Canadian Dollar, Swedish Krona and Swiss Franc.)*****

Oil was down 4% at $77.85 today
but gained 9% in October. Gold finished at $1044 down $3.
*****

Easy come easy go. The
major stock measures gave back all of yesterday’s gains plus. The DJIA lost 250
and the S&P 500 closed below 1040 support now resistance. The NAZZ dropped
55. Volume was active and breadth was 6/1 negative on the NYSE. The bears have
some hope.

*****

29 October 2009

3rd quarter GDP was up 3.5% and
the initial reaction was higher markets. Jobless claims were 530,000 and
continuing claims dropped to 5.8 million. Unfortunately our guess is that the
drop in continuing claims comes from folks whose benefits expired and haven’t
been extended.

Gold is up $4 and Oil has a $77
handle. Asia was down 2% in most countries in sympathy with the U.S. selloff
while Europe is mixed at midday.
*****

PG beat and Exxon missed.
*****

Motorola popped on the introduction of
Droid and earnings of 2 cents per share and we used the 10% pop to sell. In a perfect world the markets
wouldn’t have sold off the last few days and the Motorola news would have
pushed the shares up to the $9.50 range. But as we all know the world isn’t
perfect and we do think the markets are going lower next month. We also bought the S&P short ETF (SH) for accounts for a trade.*****

Beginning Dec. 7, CME will list
monthly and seasonal futures and options tied to snowfall at New York's
LaGuardia, Chicago's O'Hare, Minneapolis/St. Paul, and Detroit's Metro
airports. The new products follow the similar contracts for Boston's Logan
Airport and New York's Central Park, which launched in 2006 but have not
traded. CME said it has found resurgent interest in the products from potential
customers looking to guard against fickle weather conditions.
*****

(NYT)... The banks that do have
the financial wherewithal — like Goldman Sachs and JPMorgan Chase, which made
combined profits of nearly $7 billion in the third quarter — are not making
their money through lending. They are making it from trading complex financial
products that few people understand. Meanwhile, sectors of the economy are
being starved of credit. Consumer credit by commercial banks stood at $834
billion in August — about $45 billion less than at the end of last year.
Business financing is doing no better. Banks’ outstanding commercial and
industrial loans fell to $1.411 trillion in September, $170 billion less than a
year earlier. Commercial paper issued by nonfinancial businesses has plummeted
40 percent over the last year.....
*****

European markets ended up 1 % and higher, as investors welcomed data
showing that the U.S. economy returned to growth in the third quarter.*****

Oil ended up $2.40 at $79.87.
Gold gained $15 to $1045.
*****

The bulls won the day and closed the major measures on
their highs. Or maybe the mutual fund mark ups won the day. The major measures
were up 2% and Breadth was 4/1 to the good. Volume was less than on the selloff
yesterday and total new highs were less than 50. Today’s jump relieved an
oversold condition.*****

28 October 2009

Asian and European markets were
down 1% and more overnight. Gold and Oil are unchanged as the trading day
begins. Mortgage applications in the third week of October were down 12% from
the previous week. Without the $8,000 tax credit lethargy will again pervade the
housing market.
*****

Goldman has reduced its 3rd quarter GDP (to be announced tomorrow
morning) forecast from plus 3% to plus 2.7%. We wonder if Timmy has been
talking with Lloyd lately.
*****

New home sales in September were
down 3.4%. That is the first time in six months that sales have declined.
*****

The University of Phoenix (Apollo Group) ads are ever present. The
school (?) has no football team but it does have 400,000 students who go to
school on the internet and 86% of the University of Phoenix revenue comes from
U.S. Government student aid.
(Bloomberg) http://www.bloomberg.com*****

European stocks dropped, weighed down by earnings reports from
companies including German business software maker SAP, which cut its sales
forecast.
*****

27 October 2009

Baidu, the Chinese internet
operator, missed big time last night and is down 20%. Asian markets were lower overnight catching
up to the drop in U.S. markets yesterday. European bourse indexes are mildly
higher as the trading day begins. Gold is off $4 and Oil has a $79 handle. The
dollar is firm after yesterday’s reversal higher.
*****

The Case-Schiller housing index
for August showed an 11% year over year decline in prices which was better than
the 13% year over year decline in July. Home prices in 20 major cities rose 1%
in July over June. Hooray.
*****

In the months leading up to the September 2008 collapse of giantinsurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of
credit-default swaps from AIG, according to a person who has worked with
Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that
oversaw AIG Financial Products, the unit that had sold the swaps to the banks.
One of his goals was to persuade the banks to accept discounts of as much as 40
cents on the dollar, according to people familiar with the matter.

By Sept. 16, 2008, AIG, once the world’s largest insurer, was running
out of cash, and the U.S. government stepped in with a rescue plan. The Federal
Reserve Bank of New York, the regional Fed office with special responsibility
for Wall Street, opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and
effective control of the insurer.

The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion.

Beginning late in the week of Nov. 3, the New York Fed, led by
President Timothy Geithner, took over negotiations with the banks from AIG, together with the
Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet
outlining how the New York Fed wanted to deal with the swaps -- insurance-like
contracts that backed soured collateralized-debt obligations.

Subprime Mortgages

CDOs are bundles of debt including subprime mortgages and corporate loans
sold to investors by banks.

Part of a sentence in the document was crossed out. It contained a
blank space that was intended to show the amount of the haircut the banks would
take, according to people who saw the term sheet. After less than a week of private
negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100
cents on the dollar. The content of its deliberations has never been made
public.

The New York Fed’s decision to
pay the banks in full cost AIG -- and thus American taxpayers -- at least $13
billion. That’s 40 percent of the
$32.5 billion AIG paid to retire the swaps. Under the agreement, the government
and its taxpayers became owners of the dubious CDOs, whose face value was $62
billion and for which AIG paid the market price of $29.6 billion. The CDOs were
shunted into a Fed-run entity called Maiden Lane III.

Habayeb, who left AIG in May, did not return phone calls and an e-mail.

Goldman Sachs

The deal contributed to the more than $14 billion that over 18 months
was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the
decision was made. Friedman, 71, resigned in May, days after it was disclosed
by the Wall Street Journal that he had bought more than 50,000 shares of
Goldman Sachs stock following the takeover of AIG. He declined to comment for
this article. (our emphasis)

*****

(WSJ) Pacific Investment Management Co. fund manager Bill Gross says the
six-month rally in risk assets is likely at an end, and that "risks
outweigh rewards" from any move out into riskier assets based on hopes of
an economic recovery. http://online.wsj.com*****

The Conference Board’s Consumer
Confidence Index was 47 in October versus 53 in September.
*****

The Baidu miss seems to have occasioned some profit taking in other
NAZZ stalwarts that have recently been big movers on earnings such as AMZN and
AAPL. No great sell off is occurring but they are both down a bit.
*****

26 October 2009

“Would you tell me, please, which way I ought
to go from here?”
“That
depends a good deal on where you want to get to,” said the Cat.
“I
don’t much care where—” said Alice.
“Then
it doesn’t matter which way you go,” said the Cat.
“—so
long as I get somewhere,” Alice added as an explanation.
“Oh,
you’re sure to do that,” said the Cat, “if you only walk long enough.”
*****

Asian markets were mostly higher
overnight and Europe is up at midday. Gold and Oil are little changed. Friday
marks the end of mutual fund year for tax purposes.
*****

The DJIA was up 100 at 9 AM and
at 10:30 AM it is down 100. We wonder if a hedge fund is liquidating. The
talking heads are ascribing the reversal to a rising dollar and commodity sell
off and housing tax credit expiring and housing tax credit being extended but
then expiring and housing tax credit being extended but no cheap houses
and_____ (fill in the blank).
*****

European stocks closed lower.*****

Gold finished down $17 at $1038.
Oil dropped $2 to $78.50.
*****

The major measures
closed 1% lower in light trading. Breadth was 3/1 negative. We’ll give it to
the bears because the reversal held and the major measures closed on their
lows.

*****

23 October 2009

Stocks are going to open higher
with the NAZZ leading the way as Microsoft
and Amazon beat big time and are 10%
and 15% higher respectively in pre-market trading. Other earnings like 3M and Honeywell also were lower but beat and Asia and Europe are higher
following yesterday’s rebound.

Bernanke is speaking this morning
and saying that everything is hunky dory but that the government has to do some
stuff to make sure that the big boys and girls behave themselves. (Our take.)
Bloomberg’s report on his speech: http://www.bloomberg.com/.
*****

Gold is up a few dollars and Oil
has an $81 handle.
*****

By the way with Microsoft up 10% in its report it
should be noted that Microsoft reported an 18% drop in quarterly profit as the
software giant reported falling revenue at all but one of its business units.
However, it said consumer demand for Windows was strong.
*****

Kindle sales increased substantially at Amazon. Barnes & Noble
is lower on that news but since its e-book Nook
is priced at Kindle’s price and has just come on the market we think traders
are prejudging. By the buy BKS sells at 15 times earnings and Amazon is priced
at 40 times 2010 earnings.

(Bloomberg) Lawmakers in Kuwait, which is richer per capita than Germany, are
demanding a government bailout of all consumer loans, threatening to reignite a
power struggle that’s already shut down the assembly twice in 18 months.

At least half of the 50 elected lawmakers say they’ll back a plan for
the government to buy all 6 billion dinars ($21 billion) of bank loans taken by
Kuwaiti citizens to pay for homes, cars, holidays and other purchases, write
off interest payments and reschedule the rest. The government opposes the
bailout. Parliament convenes next week after a four-month break.

“It’s my right as a citizen to enjoy the wealth and resources of my
country,” said Essa al-Malki, a 32-year-old teacher of philosophy and
psychology, who took out a 15-year 23,000 dinar loan in 2000 and supports the
plan.

*****

September existing home sales
were up 9.7%. That is the $8000 tax credit at work. The average selling price
was $175,000. The Fed’s are giving folks the down payment on a house.
*****

Joe Nocera of the New York Times has an article today on Obama
administration pay czar Kenneth Feinberg’s efforts to rein in top executive pay
at banks bailed out by the American taxpayer. You know, a story on the novel
subject of accountability and transparency in American business, something that
cuts as close to fiction as possible for the journalists tasked with covering
Wall Street. Nocera’s piece is a column, not a straight piece of reporting. But
in either case, I don’t think this paragraph would be differently written:

(Nocera) “And the
American International Group is contractually obliged to make bonus payments
of nearly $200 million in March 2010. The company has promised to try to reduce
that amount by 30 percent. But once again, there is nothing Mr. Feinberg can do
because those bonuses were already written into contracts — and there is a high
likelihood that the bonuses will create another furor in Congress, just as they
did earlier this year.” [Emphasis added]

It’s really remarkable how inviolable contracts with Wall Street
executive are. Contracts, when written between big banks and investment firms,
cannot be broken. To break these contracts would undermine the basic
foundations of America and would likely immediately turn the US into a communist
country. Or something.

Contrast this with the contracts between automakers and members of the
United Auto Workers. Let’s look back and see what Nocera was saying when GM was
looking at bankruptcy a year ago.

(Nocera) “For instance, it is critical for General
Motors to be able to break its contracts with both its unions and its dealers.
It needs to dramatically reduce its legacy benefits, perhaps even eliminating
health care benefits for union retirees. It needs to close plants. It needs
to pay its workers what Toyota workers are paid in the United States — and not
a penny more. It needs to reduce the number of brands it sells — which means
closing down thousands of dealerships, which is difficult to do because of
state laws that protect car dealers. When General Motors shut down Oldsmobile,
it cost the company more than $1 billion to buy out the Oldsmobile dealerships
across the country. If it slims down its dealerships from 7,000 to a more
appropriate 1,500, it will cost many times that amount.” [Emphasis added]

Not only was it imperative for Nocera that GM not honor their contract
with the union, Nocera was also arguing that GM must find ways to go against
laws in states that protect car dealerships. Voiding contracts was not enough,
he was arguing for voiding laws!

Another example of a prominent member of the press using two different
standards for assessing the sanctity of the contracts of union auto workers and
Wall Street executives is Ruth Marcus. Ruth Marcus of the Washington Post went
to great lengths to defend AIGs bonuses and contracts while simultaneously
chiding unions to renegotiate — and if they didn’t like the deal they got, they
could just stop coming in to work. The autoworkers were not only required to
renegotiate their previously negotiated contracts, but any protestations by
their workers or supporters that these contracts be honored were met by disgust
by the pro-business press.

The hypocrisy of how the contracts of Wall Street executives are being
treated versus those of union workers is simply stunning. All I want to see in
an economic crisis is fairness. If contracts are inviolable, they are
inviolable for everyone, regardless of whether they are between blue collar
workers in factories, white collar workers in office complexes, or the
multi-millionaire executives on Wall Street. If the economic crisis demands
that auto workers take a haircut on their pay, benefits, and pensions, Wall
Street executives must be held to the same standard. Conversely, if the
contracts between big banks and investment firms and their top executives
simply cannot be changed, then it’s time to go back and honor the contracts
between the auto industry and organized labor. It’s that simple.

*****

Fortune Magazine not Mother Jones has the flowing take on the
bonus questions:

Still, we say Godspeed to this "talent." After all, the
traders and suits in the corner offices don't exactly have an unblemished track
record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA)
posted a grand total of $51 billion in losses.

Yet even as they were running themselves into the ground, the firms
managed to pay out more than $12 billion in bonuses -- including 1,606
million-dollar-plus bonuses, according to a report from the New York attorney
general's office.

*****

Unbelievable:

(FT)John Meriwether, the hedge
fund manager and arbitrageur behind Long-Term Capital Management, (the fund
that blew up in 1998 and caused a financial panic) is in the process of setting
up a new hedge fund – his third. The move comes barely three months after
Meriwether decided
to close his second fund manager, JWM Partners, which was wound down after clients saw the value of
their investments fall by more than 44 per cent over the course of the financial crisis.
JWM Partners was set up soon after the collapse in 1998 of Meriwether’s
first – and most infamous – fund, LTCM, which triggered a wave of panic across
the world’s markets and prompted the US Federal Reserve to take the then-unprecedentedstep of orchestrating a multi-billion dollar bail-out.

The reason Meriwether –and
others- close their funds and begin new ones is that when a fund loses 40% of
its value the fund manager has to wait until the fund gets back to a positive
return to begin earning its 20% performance fee.

I used to be able to see the dark humor in all this. It's not
funny anymore, it really isn't. All writing about it and analyzing it does is
get me depressed now. There is a great scene (one of many actually) from
the movie "Network" where depressed and disillusioned anchorman
Howard Beale signs off for the last time (at least that is what he thinks).
He looks his audience in the eye and frankly states, "I don't have
any bull-sh*t left. I just ran out of it you see."

*****

Iridium is back: http://www.businessweek.com.
Iridium was a Motorola child and we lost a few dollars trading it. others
lost over $5 billion back when $5 billion was $8 billion. When Iridium filed
bankruptcy the Motorola folks who created the mess became its new owners and
now they are giving the public another chance to lose money.
*****

At about 10:50 ET this morning,
CNBC and WSJ's Digits
Blog reported that Microsoft had lowered its REVENUE guidance on its
conference call. Not surprisingly, the stock immediately tanked. But what
Microsoft actually lowered was EXPENSE guidance. In other words, the
company said it would spend less than it previously thought. This is good
news, not bad, so all else being equal, it's good for the stock.

About 10 minutes after reporting
a revenue guidance cut, CNBC came back and said the lowered guidance referred
to costs.

The stock lost a quick dollar on
the wrong news.
*****

Britain's FTSE 100 index was the only major European market to close
higher as investors priced in the likelihood that interest rates would remain
at record low levels for a while yet after the country's recession unexpectedly
continued into a sixth quarter.*****

The reaction to the news is more important than the news. Amazon,
Bidu and Microsoft remain on fire as the major market measures are down 1% four
hours into the trading day. With the supposedly blow out reports and positive
market action of these three stocks the action of the rest of the market is
suggesting exhaustion.
*****

There were 19 earnings reports on
Briefing.com today. Of those 15 reported better than estimates. All 19 were
lower than last year and all but one had revenue that was 5% to 40 % below last
year.
*****

Comparing Japan’s lost two decades (1989-2009) with the U.S. economy
and stimulus spending and deficit reduction going forward.

22 October 2009

This has been a difficult market for us to wrap our arms
around. Recently, we have been trying to establish a few positions in stocks
that we think have potential as well as trying a few trades. The results have
been negative.

The intervention of the Fed and Central Banks around the
world over the last year has muted the possibility of financial meltdown. But
we do think a significant correction lies ahead and that it is necessary for
the health of markets. Many stocks are ahead of their fundamentals.

Part of our thinking may seem sour grapes for not staying
on the rising tide last May. We did catch the move of the March bottom with
accounts recovering their losses; and most accounts are flat to up 15% on the
year. And our ‘cash’ strategy worked
into July when stocks took off to the upside and we missed the rest of the move
waiting for a correction that still hasn’t come. We wish we had stayed on the
tide but our years of experience said the odds were not good. This year
happened to be the exception.

Life goes on; we have our capital intact; and we will do
well going forward. Investing is a humbling art, not a science.

*****

Asian markets were lower
overnight as China reported 9% third quarter growth and speculation arose that
the Chinese authorities will begin trimming stimulus programs. European bourse
indexes are also lower at midday while U.S. futures are flat as Dow Chemical
and McDonalds reported better than numbers. Oil has an $80 handle and Gold is
down $7 in the early going.
*****

21 October 2009

Yesterday CNBC interviewed Goldman Sachs’ chief economist who was
accepting a prize for the most accurate economic forecasting over the last four
year period. He said that GDP would grow at 3% in the fourth quarter of 2009
but by mid 2010 growth would slow to 1.5% as the effects of all the stimulus
money began to wane and unemployment and job loss remained high.

Since the markets usually
anticipate 6 months out his forecast suggests the Goldman is going to be taking
a jaundiced view of the economy- if the folks at Goldman listen to their prize
winning economist. Since the new saw has Goldman replacing General Motors as
the economic bellwether we think this forecast is important.
*****

St Jude matched numbers and the
stock is higher this morning. And that is how trading goes.
*****

Asian markets and European
bourses were and are lower. U.S stocks opened higher. Oil has a $78 handle as
the trading day begins and Gold is down $4.
*****

The dollar traded at $1.50 to the
Euro this morning.
*****

Barnes & Noble has a new e-book called Nook
that it introduced today to compete with Sony and with Amazon’s Kindle. With a
5% yield and down 20% in share price in the last two weeks on an earnings
warning we are establishing a small ownership position in accounts. We also
think the death of bookselling by BKS is greatly exaggerated. Most independent
book stores are probably doomed but that will redound to the benefit of BKS.

Crude Oil futures jumped above $81 Wednesday, as a large drop in
gasoline inventories sparked a rally that was then fueled by a weakening
dollar.

Oil ended up $2.23 higher at
$81.41.
*****

Dick Bove, an analyst who has been wrong and right on
bank stocks but still has power, issued negative comments on Well Fargo earnings and his comments
tanked bank stocks. Unfortunately we stayed a day too long on our BBT rebound
trade and sold it at a loss as stocks sold off.*****

Stocks closed 1% lower in moderate trading. The last hour
sell off was not a positive for the bulls. Breadth was 2/1 negative. The bears
won the day.
*****

20 October 2009

Asian was higher overnight and
Europe is mixed to lower at midday. Apple beat big time last night as did Texas
Instruments and this morning Caterpillar beat big. Nazz futures are higher
while the DJIA and S&P 500 are higher but not so much. Gold is up $6 and
Oil has a $79 handle. The reaction to
the news is more important than the news.

This is a quiz. What do the
record-high Wall Street bonuses have in common with the record-low yields for
savers? Answer: They show yet another way that prudent people, especially those
living on fixed incomes, are being cheated by the government's bailout of the
imprudent.

Here's the deal. The government
is spending trillions to keep interest rates down to support the economy and
prop up housing prices, and those low rates have inflicted collateral damage on
savers' incomes. "It's a direct wealth transfer from savers and retirees
to overly indebted borrowers," says Greg McBride, senior financial analyst
at Bankrate.com.

Since October 2007, when
government intervention in the financial system began picking up speed, yields
on the ultrasafe one-year and five-year investments that many retirees favor
have tanked. Two years ago, the average yield on a five-year federally insured
bank CD was 3.9 percent, according to Bankrate.com. Now it's 2.2 percent, a
drop of more than 40 percent. Yields on one-year CDs have almost vanished: 0.92
percent, compared with 3.6 percent. On five-year Treasury securities, the yield
is down to 2.3 percent from 4.4 percent. On one-year maturities, you get a
minuscule 0.3 percent, down from more than 4 percent in 2007.

The rates on AAA-rated one- and
five-year tax-exempt bonds, another safe saver haven, are down sharply, too,
for bailout-related reasons that we'll get to in a bit. As for money-market
mutual funds, fuggeddaboutit -- the average is about 0.06 percent (no, that's
not a misprint), according to Crane Data, down from 4.6 percent two years ago.

It's become customary practice
-- a wise one -- that when the U.S. economy falters, the Fed cuts
very-short-term rates, the only ones it controls, to stimulate business. But
this time the Fed hasn't confined its rate-suppression activities to the
short-term markets.

It's been a huge buyer of
Treasury securities with maturities of up to 10 years, as well as
mortgage-backed securities and Lord only knows what else. This buying pressure
forces up the securities' prices and thus reduces their yields. The Fed, which
declined to talk to me, is the major buyer of mortgage paper, in what's clearly
an attempt to hold down mortgage rates and prop up house prices. The Fed has
also been a huge buyer of Treasury bills -- securities with a maturity of less
than a year -- that Uncle Sam issued to help fund the federal deficit and pay
for various bailout programs.

But wait, there's more. As part
of the economic stimulus package, the federal government is promoting Build
America Bonds, under which the Treasury pays 35 percent of the interest costs
of project-related bonds issued by state and local governments. These BABs, as
they're known, are taxable securities, rather than being tax-exempt as normal
state and local bonds are.

The BAB program has sharply
reduced the supply of new tax-exempt muni bonds. Almost $40 billion of Build
America Bonds have been issued since the program began in April, according to
Bloomberg. Chip Norton, a muni maven at Wasmer Schroeder, says that by reducing
the supply of new munis, Build Americas have been a major factor in driving
down yields on one- and five-year triple-A munis to 0.5 percent and 2.3
percent, respectively, from 3.4 percent and 3.6 percent two years ago.

One day, the federal government
won't be able to keep all these interest rates artificially low. The Chinese
government, our major financier, is growing restless. The dollar's sharp
decline relative to other currencies is an ominous sign. If this problem
accelerates, it will put pressure on the Fed to let interest rates rise to
protect the dollar from a collapse.

But until rates go up, Wall
Street will be chowing down on essentially free money, while fixed-income
people living off their investments will have to eat into their capital, take
more risk or reduce their standard of living. A nice reward from their government for a lifetime of saving.
Thanks for nothing, guys.

Allan Sloan is Fortune magazine's senior editor at large.

*****

New construction on U.S. housing
units was essentially flat in September at a seasonally adjusted annual rate of
590,000, as a big drop in multifamily units was offset by an increase in starts
of single-family homes, the Commerce Department estimated Tuesday. August's
starts were revised lower to a 587,000 pace from 598,000 previously reported.
Economists surveyed by MarketWatch were expecting starts to rise to a 607,000
rate.
*****

Lower energy costs were responsible for a 0.6% drop in Sept. producer
prices.

*****

(WSJ) Hedge-fund giant Galleon
Group, facing heavy investor withdrawal requests after Friday's arrest of
co-founder Raj Rajaratnam, moved to unload some of its technology stocks and
other holdings to raise cash.
*****

The market at this time is a game
of expectations not reality. Case in point: Caterpillar
Inc.'s third-quarter profit fell 53%, but the company said it likely has seen
the bottom in sales as dealers have slashed inventories during the economic
downturn. The heavy-equipment maker's earnings results also blew past Wall
Street expectations. Caterpillar shares jumped 5.2% to $60.88 in premarket
trading Tuesday.
*****

Since many large companies are
beating analyst expectations what is the purpose of analysts?
*****

We were amused by this paragraph
from the WSJ concerning the hedge fund insider trading scandal:

On Friday, federal prosecutors charged Mr. Rajaratnam and five other
people with insider trading — using information that they received illegally in
an effort to make riskless profits on stocks. Prosecutors have said they are
still investigating the case, and some
defense lawyers who are not representing people already facing charges said
Monday that they could not comment on the record because they may be retained
soon.

The lawyers can’t comment because
a huge payday may be in the wings. When we read about the charges on Friday our
first thought was that the SEC is doing for defense lawyers what the Treasury
did for banks. These actions by the SEC against the hedge fund community are
like police trying to catch folks who speed on the expressways. One or two are
caught but thousands continue to speed. In our experience on the expressways
when the cops pull somebody over everyone else speeds up as they pass by since
they know that it one less cop to worry about.
*****

The regional bank reports are not
getting better. These are the banks that lend money rather than act as closet
hedge funds like JP Morgan and Goldman Sachs. Zion Bancorp is representative of
the larger regional banks and their report isn’t pretty. Chargeoffs and bad
loans continue to grow.

(WSJ) Zions Bancorp swung to a third-quarter loss as the firm
continued to suffer from sour loans, but it said it saw some signs of
stabilization in the economy The Utah-based regional bank has reported four
losses in a row, as its Western U.S. markets have been among the worst hit in
the housing downturn. Zions reported a loss of $152.9 million, or $1.41 a
share, compared with year-earlier earnings of $37.8 million, or 31 cents a
share. Analysts estimated a loss of $1.24, according to a poll by Thomson
Reuters. The latest results included $146.2 million in acquisition-related
gains.

The provision for loan losses
fell to $565.9 million from $726.7 million in the second quarter but was well
above the $156.6 million reported a year earlier. Net charge-offs -- loans
the bank no longer thinks are collectible -- rose to $389.1 million from $353.2
million and $100.2 million, respectively.

Nonperforming assets, those in danger of going bad, climbed
to $2.17 billion on Sept. 30 from $1.92 billion and $922.3 million.

The tangible common equity ratio, which measures how much of a bank's
hard assets its common shareholders own, fell to 5.43% from 5.66% in the second
quarter and 6.05% a year earlier. Average assets were $53.6 billion, down from
$54.07 billion and $54.28 billion, respectively.

(WSJ) The Internal Revenue Service is examining more than 100,000 suspicious
claims for the first-time home-buyer tax break, another sign of potential
trouble for the soon-to-expire program. The measure, adopted in February as
part of the economic-stimulus bill, gives first-time buyers an $8,000 tax
credit in an effort to boost sales and stimulate the moribund housing market.
The program is set to end Nov. 30, but housing-industry leaders are lobbying
Congress to extend it. More than a million claims for the credit have been
received so far, and housing-industry experts estimated that the credit has
helped generate about 350,000 home sales that wouldn't otherwise have occurred.
But some lawmakers and tax experts now say there is evidence that a significant
number of the claims might prove to be unjustified, or even fraudulent.

*****

Housing
starts rose 0.5 percent to an annual rate of 590,000 from a 587,000
pace in August that was lower than previously estimated, figures from the
Commerce Department showed today in Washington. Permits,
a sign of future construction, fell for the second time in the past three
months.
*****

And the beat goes on:

California Attorney General
Edmund G. Brown Jr. has filed suit against State Street Bank for allegedly
defrauding the state's largest pension funds, Calpers and Calstrs. The lawsuit
seeks to recover $200 million in alleged overcharges and penalties.

We watched the interview on CNBC
with Brown. The lack of knowledge of the CNBC talking heads is sad. The talking
heads suggested that one price on a currency transaction for California and
lower cost for State Street entitled State Street to the difference. Too bad
these folks don’t know that pension managers are not entitled to execute
principal transactions for clients.
*****

We can‘t understand why the FBI
and all spend so much time and money trying to catch Israeli spies. Israel for
better or worse is our strongest ally.

(Slate) Stewart Nozette was charged with spying for Israel. Nozette is
a former government physicist who worked in various agencies, including the
Energy Department, and has held high-level security clearances.
Nozette, 52, had access to classified information as recently as 2006.
It's not clear why agents began to track down Nozette, but he did try to pass
on secret nuclear and space secrets to an FBI agent posing as an Israeli
intelligence operative. He allegedly wanted $11,000 for his trouble.
Nozette passed along sensitive information through a "dead drop" at a
post-office box. Wiretaps show how Nozette didn't really trust the undercover agent at first, but the agent managed to gain the
scientist's trust.

*****

St Jude dropped a couple of dollars
today on the ends that Boston Scientific, a competitor, missed. St Jude has
already announced lower expectations and dropped 20% two weeks ago. We traded
it then and we used the drop to reestablish a trading position.

*****

European shares ended a choppy session in negative
territory, losing ground after U.S. housing data showed a smaller-than-expected
rise in housing starts.*****

Headline from The Onion:
“Shoot and Release Program catches on with Hunters.”

*****

STJ dropped $1 immediately after we
purchased it even though it was down $2 at the time. STJ releases earnings in
the morning and we are going to trade out at a scratch profit and look again
tomorrow. With today’s action we aren’t sure the warning of lower results than
expected that they announced a few weeks ago is priced in the shares*****

Stocks closed lower but above their worst levels. Breadth
was 2/1 negative all day. Volume was moderate. The bulls win because the sell
off today was grudging.*****

19 October 2009

Asian and European markets war
and are strong overnight. Gold is up a few dollars and Oil has a $76 handle.
*****

The major measures are back to where they were a year ago.
A year ago we began purchasing stocks after holding a large cash position into
the end of September 2008. We thought that the markets had incorporated the
troubles of September last. We were wrong.

Our accounts dropped into year end, rallied in the first
weeks of January and then collapsed into March of 2009 followed by a recovery
to flat to up a chunk for the year by May. At that time we went to cash
figuring that the market would correct after a 30% move off the lows. During
that 30% move off the March lows our accounts recovered 50% and more and we
chose to not be too smart. Also even though we have been in the business for
forty years we were traumatized by the collapse.

The markets have rebounded 50% without a significant
correction although there was a week in July that caused some fear to the
bulls.

We remain in a quandary. We thought stocks were fairly
priced last fall and would guess that they are fairly priced now. Unfortunately
the collapse of November 2008, and January to March 2009 have cracked our
crystal ball. Until we find a new one we are gingerly
feeling our way with a quick trigger finger.

We have misread the market for the last year, but we
survived. We were too anxious last year to take advantage of the turmoil and
then this spring we were too traumatized to maintain positrons after the 30%
recovery in the market measures. The last year has mitigated our greed gene but
not our desire to find reasonable trades or investments. The next few months
may well provide the opportunity. If not there is always next year.

The markets still need a 10% plus correction to test the
bulls resolve. With all the money the Fed has pumped into the system we don’t
think another March 2009 is in the cards. But the markets will be healthier
with a scary correction to refine and confirm the six months dynamic move.

Nokia didn’t bounce in our time frame
and we don’t want to overdo the phone area. Motorola is a name traders and just
folks have been watching for years waiting for a rebound and any happy talk
will move the stock 50%.*****

One psychological problem to investing
at present levels is that stocks reached such low levels in March. For example
Motorola traded at $2.95 in March and we are buying at $8.40 today. Our take is
that we have to view stock prices as we did in 1987 when on the crash on
October 19 - today is the 22nd
anniversary and was also a Monday http://en.wikipedia.org/wiki/Black_Monday (1987) - had stocks trading at ridiculous lows. In
the following months and years it was necessary to treat the Crash lows as an
aberration and an opportunity that few folks were able to take advantage. The same logic and reasoning should apply to
the March lows.
*****

We bought BB&T
Bank for a trade in larger accounts. It is down on earnings today.

*****

European shares closed at their highest level in more than a year,
accelerating a set of broad-based gains after German car maker Daimler provided
an unexpected but upbeat assessment of third-quarter cash flow and earnings.*****

AIG uses government backing to repay Citi and other banks. The markets
are still not functioning for some. And taxpayers are on the hook.

(Bloomberg) American International Group Inc., the insurer bailed out by the U.S.,
extended an additional $2 billion in credit to its plane-leasing unit that is
unable to borrow from its usual sources of funding. Proceeds were used to repay obligations under a five-year credit
agreement with banks including Citigroup Inc., that expired last week, Los
Angeles-based International Lease Finance Corp. said today in a regulatory
filing.

*****

Gold ended up 410 at $1061. Oil
was $79.25 up 74 pennies.
*****

Apple and Texas Instruments report after the close and will be the
focus of after hours and early trading tomorrow.

16 October 2009

Asian and European markets were
mixed small overnight. BankAmerica
disappointed and is lower and Google
and IBM beat and also raised
estimates. Traders liked the Google news but not the IBM news. GE had large write downs in its finance
arm and earnings were half of last year but beat estimates. Last night and
today are Triple Witching and the
major measures look to open lower. Oil has a $77
handle and Gold is $1050.
*****

Stocks opened lower and we bought GE down 4%. Because we don’t want to increase exposure we sold AT&T,
Verizon and St Jude. The GE and NOK (bought yesterday on a 10% per
share price drop on disappointing earnings) are more aggressive and so the
desire for more cash. Both NOK and
GE have reported earnings while VZ
and T haven’t.*****

Michigan Sentiment was 69 versus
73 expected and that news sent the major measures down 1% when released at 9AM.
*****

And the beat goes on as the Feds continue to hire Goldman folks.
This guy has four years experience
in the securities industry, all at Goldman.

(Bloomberg) The U.S. Securities and Exchange Commission hired Adam Storch, a 29-year-old former employee in Goldman
Sachs Group Inc.’s
business intelligence unit, as the
enforcement division’s first chief operating officer, according to people
familiar with the decision.

The COO, who started Oct. 13, has “a great deal of background” in
technology and managing processes and the pace of work, Robert Khuzami, head of enforcement, said yesterday in Washington. Storch, who worked
since 2004 in a unit at Goldman Sachs that reviewed contracts and transactions
for signs of fraud, will be charged with making the unit more efficient.
Storch, reached by telephone at the SEC, declined to comment.

*****

The market broke as this news became available. Maybe the hedge fund
this fellow controls is liquidating or other hedge funds are targeting stocks
owned by the hedge fund.

http://www.businessinsider.com/raj-rajaratnam-founder-of-3-billion-galleon-group-hedge-fund-arrested-2009-10) Prosecutors and the FBI have announced
that they have charges against several people involved with the Galleon Group
hedge fund, including founder Raj Rajaratnam. Galleon is a major hedge fund
player known for its investment in technology stocks. Most notably, the
government is filing criminal charges related to insider trading in a number of
securities going back to 2006. So this is much more than a standard SEC civil
charge. Rajaratnam was arrested in his apartment last night. The Galleon Group
has something like $3 billion under management. The news was broken by David
Faber at CNBC.

*****

European stock markets turned lower, with banks leading decliners,
following a set of downbeat U.S. earnings reports, most notably from Bank of
America.*****

“Lloyd Blankfein, the company’s chairman and CEO, said Goldman is
starting to see a rebound across many of its businesses even as the broader
economy and consumers continue to struggle with rising unemployment and
mounting loan losses.

“Although the world continues to face serious economic challenges, we
are seeing improving conditions and evidence of stabilization, even growth,
across a number of sectors,” Blankfein said in a statement.”(Yahoo news)

It’s literally amazing to me that
our press corps hasn’t yet managed to draw a distinction between good news on
Wall Street for companies like Goldman, and good news in reality.

I watched carefully the reporting
of the Dow breaking 10,000 the other day and not anywhere did I see a major
news organization include a paragraph of the “On the other hand, so fucking
what?” sort, one that might point out that unemployment is still at a
staggering high, foreclosures are racing along at a terrifying clip, and real
people are struggling more than ever. In fact the dichotomy between the
economic health of ordinary people and the traditional “market indicators” is
not merely a non-story, it is a sort of taboo — unmentionable in major news
coverage.

Here’s an example of the
Dow-10000 coverage, from USA Today:

If investors view the Dow’s recovery as a signal that the economy and
financial markets are healing, it could serve as a mood-altering boost. It
might also lure skeptical investors hiding in safe fixed-income investments
such as money market funds and certificates of deposit, which are yielding
close to 0%, to move cash back into stocks, says Bruce Bittles, chief
strategist at Robert
W. Baird.

“Dow 10,000 will act like a magnet,” Bittles says. “It will increase
optimism and bring in more money off the sidelines.” But, he says, the index
must stay above 10,000 for a few weeks or more before investors think it is
safe to get back in.

No one mentions here that this is
a carrot-and-stick story — the stick being that ordinary people have been
robbed of the interest they should be getting in CDs and ordinary bank savings
accounts by the various bailout programs and lending guarantees, which have
brought the cost of capital down to nothing for the big banks, and punished
those people who have been doing the right thing all along by saving. The Fed
lends its money to Goldman Sachs and BOFA for free, why does anyone have to pay
Grandma a high rate for her CD or her bank savings?

And now that those good,
savings-oriented people are getting gouged, they’re being encouraged to get
back into the stock market, where the returns are better at the moment. They’re
being called people on the “sidelines” who have to be encouraged to “get back
in.”

What’s so tiresome about all of
this is that no one reports this stuff as a political story. This is politics
at its most basic. The Dow is going up, sure, but what does that mean, if the
rest of the economy still (stinks)?
*****

The major measures closed lower. Breadth was negative and
volume light. The bulls still own the show.*****

15 October 2009

Aisin markets were mixed small
overnight as are European markets at midday. Gold is down $14 and Oil is off
pennies. Goldman beat but is lower as talk of bonuses resounds in the halls of
Congress although Republicans like Richard Shelby speaking on CNBC think it’s
OK. And nothing will come of the wailing.
*****

Stocks are going to open lower
which is normal after a market measure like 10000 on the DJIA is reached- as
some folks ring the bell. Activity later in the day will be more meaningful.
*****

Nokia is off 10% ($1.50) on earnings
and we bought for a trade. We also repurchased St Jude for a trade.*****

The Consumer Price Index (CPI)
was up 0.2% in September, matching consensus expectations. The CPI is down
1.3% versus a year ago but is up at a 4.2% annual rate in the past four months.
Energy prices were up 0.6% in September after a 4.6% jump in August. Food
prices were down 0.1% in September. Excluding food and energy prices, the
“core” CPI was up 0.2% (0.16 unrounded) in September and is up at a 2.0% annual
rate this year.

Real average hourly earnings –
the cash earnings of production workers, adjusted for inflation – were down
0.1% in September but are up 4.4% versus a year ago.
*****

Capital One said the annualized net charge-off rate -- debts the
company believes it will never collect -- for U.S. credit cards had risen to
9.77 percent in September from 9.32 percent in August. Accounts that were at
least 30 days delinquent -- an indicator of future loan losses -- increased to
5.38 percent from 5.09 percent.
*****

The Labor Department said
Thursday that first-time claims for
jobless benefits dropped to a seasonally-adjusted 514,000 from an upwardly
revised 524,000 the previous week. The fifth decline in six weeks was below
Wall Street economists' forecasts, according to Thomson Reuters. The tally of
people continuing to claim benefits dropped by 75,000 to 5.99 million, its
first time below 6 million since the week of March 28. Continuing claims data
lags initial claims by a week.
*****

(CNNMoney.com) -- Despite
concerted government-led and lender-supported efforts to prevent foreclosures,
the number of filings hit a record high in the third quarter, according to a
report issued Thursday.

"They were the worst three
months of all time," said Rick Sharga, spokesman for RealtyTrac, an online
marketer of foreclosed homes.

During that time, 937,840 homes
received a foreclosure letter -- whether a default notice, auction notice or
bank repossession, the RealtyTrac report said. That means one in every 136 U.S.
homes were in foreclosure, which is a 5% increase from the second quarter and a
23% jump over the third quarter of 2008.

Nevada continued to be the
worst-hit state with one filing for every 23 households. But even tranquil
Vermont, where the foreclosure crisis has barely brushed the housing market,
saw foreclosure filings jump nearly 170% compared with the third quarter of
2008. Still, that resulted in just one filing for every 5,023 households in the
state -- the best record in the country.

The RealtyTrac report also
unveiled the results for September, and it found that there was slight relief
from foreclosure filings. Last month, notices totaled 343,638, down 4% compared
with August. Unfortunately, that total accounts for 87,821 homes that were repossessed
by lenders.

That deluge contributed
significantly to the quarter's record 237,052 repossessions, a 21% jump from
the previous three months. So far this year lenders have taken back 623,852
homes.
*****

We didn’t know what Cadillac
plans were and Slate Article URL: http://www.slate.com/id/2232434/ published this primer today.
Before we moved to Medicare we were paying $20,000 for a plan with a $2,500
deductible. We certainly didn’t think it was a Cadillac or even a Ford.
Congress is trying to reinvent the wheel. Opening up Medicare is the only
sensible solution.

How do I know if my insurance plan is a "Cadillac
plan"? Look at the cost. The finance committee defines high-cost
or "Cadillac" as any plan with premiums higher than $8,000 for
individuals or $21,000 for families. Keep in mind that these figures include
everything you and your employer spend on health care except for the
deductible: premiums for medical (the portions paid by you and by your
employer), dental, and vision coverage, as well as any money you put into a
flexible spending account, which allows you to set aside pretax money to cover
medical costs. Since your pay stub may show only your personal
contribution—not that of your employer—the best way to find out the total cost
of your plan is to ask your human resources liaison. Many companies already
list their employees' total premiums on their W-2 tax forms. The bill passed by
the finance committee would make that mandatory.

What does a
"Cadillac plan" offer? The top-of-the-line plans—say, the
$40,000-a-year plan offered to Goldman Sachs CEOs—likely have no co-payments,
no deductibles, few limits on how much you can spend, and no need for prior
authorization, i.e., to get special permission before you get treated.

But many not-so-fancy plans also
qualify as "Cadillacs" under the finance committee's definition.
That's because the term refers to total cost—not a particular set of
benefits—and many factors—like the state you live in, the size of your company,
and the makeup of that company's work force—can affect costs. Premiums tend to
be significantly higher in Massachusetts than in Idaho, for
example. (The employer/employee contribution also varies by state.) The smaller the business, the fewer
employees who go into the pool, the less leverage the organization has to
negotiate lower premiums. And if the workers have an average age of, say, 54,
their premiums are going to be a lot higher than if the average is 25.

A lot of basic benefits packages,
then, can still qualify as "Cadillacs." (The Senate finance committee
has made exceptions for workers with high-risk jobs like firefighters, whose
premiums tend to be high.) The Joint Committee on Taxation has estimated that
the tax would hit 14 percent of family health policies and 19 percent of
individual policies in 2013, when the legislation would take effect. Those
numbers would rise to 37 percent and 41 percent, respectively, by 2019, since
premiums are expected to rise faster than inflation.

If I have a
"Cadillac plan," will I have to pay the proposed tax myself?
No. The 40 percent tax will be charged directly to the insurer. That is, the
insurance company has to pay 40 cents on every dollar spent above the
$8,000 or $21,000 cutoff. Some portion of that tax, however, is likely to get
passed onto the consumer.

When did we start calling
them "Cadillac plans," anyway? Ever since its introduction
in 1902, the Cadillac has been synonymous with American luxury. But the health
care metaphor appears to have taken root sometime in the 1970s. In 1977, a
hospital administrator in Cedar Rapids, Iowa, complained that "every
citizen demands Cadillac health care service and is not concerned about the
Cadillac costs because in most instances the patient doesn't pay this cost
personally." In 1986, an official with the Alabama Medicaid Agency noted
that "Alabama has a Volkswagen type Medicaid program compared to the
Cadillac or Rolls Royce programs found in other states." The term was used
a lot in the early '90s during the push for universal health care. It then made
a comeback in 2007, when President Bush proposed taxing health care benefits,
and again during the 2008 election, when John McCain made the proposal a
cornerstone of his health care plan.

Explainer
thanks Paul Fronstin of the Employee Benefit Research Institute, Elise Gould of
the Economic Policy Institute, Elizabeth McGlynn of the RAND Corp., and Edwin
Park of the Center for Budget and Policy Priorities.

From minyanville.com: How long, O Lord, how long? It's
always good to remember that the stock market is not the economy. Every
day I come into the office to find literally dozens of emails complaining that
the market is ignoring the relentlessly bearish news flow. But that doesn't
bother me. What will bother me is when we start getting good news. Markets
tend to reach exhaustion on good news, not bad. And these days it's
hard to discern between what's merely bad and what's actually disastrous. So,
let's take a look at what the difference between the two really is, and what it
means going forward.
*****

Greenspan speaks. Too bad he didn’t have these thoughts when he was
Chairman of the Fed and had the power to act.

(Bloomberg) U.S. regulators
should consider breaking up large financial institutions considered “too big to
fail,” former Federal Reserve Chairman Alan
Greenspan said. Those banks have an implicit subsidy allowing them
to borrow at lower cost because lenders believe the government will always step
in to guarantee their obligations. That squeezes out competition and creates a
danger to the financial system, Greenspan told the Council on Foreign Relations
in New York. “If they’re too big to fail, they’re too big,” Greenspan said
today. “In 1911 we broke up Standard Oil -- so what happened? The individual
parts became more valuable than the whole. Maybe that’s what we need to do.”
*****

Oil closed up $2.35 at $777.53.
Gold was down $13 at $1053. Europe closed mixed.
*****

Tithing is usually at least 10%
of earnings. If Goldman has a $20 billion bonus pool wouldn’t $2 billion be the
least to contribute?

(NYT).... In part to allay criticism of its profits and bonuses, Goldman
announced a $200 million contribution to its foundation, which promotes
education. [. . .] Goldman also disclosed how much it had set aside for its
annual bonus pool. It said that it had earmarked $5.35 billion in compensation
and benefits, an increase of 84 percent from the year earlier period, putting
it on course for a record payout (of over $20 billion) to its executives by the
end of 2009.

.... But many billions of dollars of federal assistance for itself, and
more for the general banking sector, have a way of turning things around. In
anticipation of strong earnings results, Goldman stock surged to $192.28
yesterday, although the share price was about 2% lower in late morning trading
today. As of yesterday's close, Goldman Sachs’ stock had soared 122 percent
this year.

Trading revenue is based on two things: having capital and leveraging
that capital in order to make bets to drive the firm’s bottom line. That in
turn introduces risk. Having capital has been taken care of by federal
subsidies, and the ancillary impact that the government’s bank-savior mentality
has had on general market psychology. Though the firm’s overall leverage was
down to 17 to 1 in the last quarter, from a high of 27.9 to 1 before the
crisis, Goldman still gets to compute its capital requirements the old
investment bank way.

Why? Once Goldman got approval to become a bank holding company on
September 21, 2008, it had two years to come into line with other bank holding
companies in terms of capital requirements. But, a lot can change in two years
if your influence is as strong as Goldman’s--and you don’t like constraints.
Despite the new name, Goldman received a Federal Reserve waiver from the market
risk rules that other banks use.

Thus, it gets federal support
like a bank, but computes risk and capital reserves like an investment bank, meaning it can set aside more capital to
trade with, even while its value at risk (VAR) remains high. Last quarter,
Goldman’s daily VAR jumped to a record of $245 million, up 35% compared to the
$181 million held against risk during the third quarter of 2008. This quarter,
it was $208 million, a 17 percent decrease over last quarter.....

..... Goldman will do well as long as trading on leverage does well,
and as long as there remains no meaningful regulatory fallout from last year’s
crisis. Goldman is sheltered from the general riff-raff of mortal consumer
losses. One additional reason that it doesn’t need to put as much capital away
in reserves for consumer-driven losses: it can use that capital to trade.

When you stack all the cards in your favor, you tend to beat the other
players at the table. Goldman’s earnings are proof of that. As a result, after
the market digests this quarter's numbers, their stock price is likely to
continue to rise—that is, until the government gets wise to the dangers of risk
driven profitability. Since that wisdom wasn’t achieved from the experience of
this crisis and bailout, until and unless the next leg of the crisis smacks
Washington even harder in the head, Goldman will keep winning.

14 October 2009

Intel and JP Morgan beat
estimates big time although Intel’s earnings were lower than last year. The
markets are smoking higher on that news with the major measures all 1% higher
pre-opening. Asian and Europe were also up over night. Guess the great world
nightmare is over and everything is rosy going forward. Light, sweet crude for November
delivery most recently traded 75 cents, or 1.1%, higher at $74.90 a barrel, on
the New York Mercantile Exchange, hitting an intraday high of $75.32 a barrel.
That was the highest price since Oct. 21, 2008. Crude hasn't settled above $75
a barrel since Oct. 14, 2008.
*****

Yesterday Meredith Whitney voiced
doubts about the banks going much higher and reduced Goldman to a hold from buy
and suggested taking profits in it.
*****

Today’s action after the first
hour will be a tell. The last few days the markets looked tired and this
morning’s action may tell whether the bulls have the mojo to punch the DJIA to
10000 and the S&P 500 to 1120.
*****

U.S. retail sales dropped 1.5% in September after the government's
cash-for-clunkers subsidy ended, while sales excluding autos rose at a healthy
pace, the Commerce Department reported. It was the largest decline in
seasonally adjusted retail sales since December. Excluding autos, sales rose
0.5% in September. The numbers are not adjusted for price changes, but are adjusted
for trading days, holidays and other seasonal factors. The results were
stronger than expected by economists surveyed by MarketWatch, who were forecasting
a 2.3% decline in overall sales and a 0.3% gain in sales excluding autos.

*****

Guess who didn’t
get hurt by all the shenanigans on Wall Street and the recession caused by
those shenanigans? Yes, Wall Street.

(WSJ) Major U.S. banks and
securities firms are on pace to pay their employees about $140 billion this
year -- a record high that shows compensation is rebounding despite regulatory
scrutiny of Wall Street's pay culture.

Workers at 23 top investment
banks, hedge funds, asset managers and stock and commodities exchanges can
expect to earn even more than they did the peak year of 2007, according
to an analysis of securities filings for the first half of 2009 and revenue
estimates through year-end by The Wall Street Journal.
*****

While we were away we traded out of all positions for
small profits except T and VZ and SH (Short S&P 500 ETF).Today we conceded defeat and took our
loss on SH. We are much better long
investors than short sellers.*****

(WSJ) The sprawling Manhattan
apartment complex known as Peter Cooper Village and Stuyvesant Town -- acquired
for $5.4 billion in 2006 by a venture of Tishman Speyer Properties and a unit
of BlackRock
Inc. -- is running out of cash. As of the end of September, it had $33.7
million left of the $400 million in interest reserves set up to service its
debt, according to the people familiar with the matter. At its current burn
rate of about $16 million per month, the reserve could be depleted before the
end of the year, the people said. Others have said the venture could avoid
default until February.

... Realpoint estimates that the
property is worth only $2.1 billion now, less than half of the purchase price.
By that measure, all the equity investors and many of the lenders, including
Government of Singapore Investment Corp., or GIC; Gramercy
Capital Corp.; and SL Green Realty Corp., are in danger of seeing
most, if not all, of their investments wiped out. Hartford
Financial Services Group, which bought $100 million of the debt tied
to the property, said it has "sufficiently reserved for this asset in the
first half of this year."
*****

(Chicago Sun Times) A trust fund for the family that owns
Jose Cuervo tequila is expected to close today on the acquisition of a 26-story
office building at 303 W. Madison. A source close to the negotiations said the
Beckmann family of Mexico will pay $60.3 million in what appears to be the
first downtown office building sale of the year. The 310,000-square-foot
building is about 90 percent occupied.

The seller, pension fund manager
McMorgan & Co., bought it for $66.5 million in 2004. The 10 percent
discount will serve as a benchmark for other sellers who might look to get out.
*****

An errant bet?

Zoe
Cruz is working on plans to launch a hedge-fund firm, according to people
familiar with the situation. The 54-year-old former Morgan
Stanley co-president has begun recruiting employees to join a firm
she plans to call Voras Capital Management, these people said. Voras is the
Greek word for "north" and the name of a mountainous area near the
small town in Greece where she was born. Ms. Cruz's move marks the re-emergence
of one of the highest-ranking women on Wall Street when she was ousted in
November 2007. During a 25-year career at Morgan Stanley, she ran some of the
New York firm's most profitable trading desks, overcoming the male-dominated
culture of bond trading. Her direct style and profit-machine status resulted in
the nickname "Cruz missile" and a $30 million pay package in 2006.
Ms. Cruz was often mentioned as the heir apparent to Morgan Stanley Chief
Executive John Mack, even though some colleagues clashed with Ms. Cruz as her
luster grew. She and more than a dozen other senior traders and risk managers
were ousted after a unit that reported to Ms. Cruz as part of her duties as
Morgan Stanley co-president suffered a loss of $4 billion because of an
errant bet on the mortgage market.
*****

London, France and Germany all
closed 2% higher on the day.
*****

Oil ended at $75.12 and Gold at
$1063.
*****

The DJIA closed above 10000 at 10015 and the S&P 500
gained 19 to 1092. Breadth was 3/1 to the good and volume was moderate. The
bulls continue to hold sway.*****

9 October 2009

8 October 2009

We will be taking
the next five days off to visit Chicago and clients and to celebrate our 66th
(Social Security) birthday tomorrow. The next post will be Wednesday October 14.*****

The bull markets march higher and
this morning is no exception. Asia and Europe were higher overnight and stocks
are opening almost 1% higher. Jobless claims were 521,000 which was about
10,000 less than. August wholesale
inventories were down 1.3% which means something to someone.
*****

Retailers reported higher than
expected sales for the month of September. Since the game always is
expectations and not growth most retailers are higher in early trade.
*****

Total consumer credit outstanding fell $12 billion in August,
reflecting Americans' reluctance to hold large amounts of debt. Or maybe it's
just banks writing off that amount.

*****

Alcoa reported a profit when a loss was expected. Of course the
profit excludes one time charges and revenues were down 29%.
*****

We bought AT&T
and Verizon in accounts for their 6% yield (which will offer support) and added
to our Ciena position. T and VZ are lagging the markets on the upside. We also
added NCR today which is down 8% on a Key Bank downgrade and reentered Saint
Jude below our purchase price of our profitable trade on Tuesday.

We also sold half
our S&P 500 short ETF. We have been looking for a top but looking and
hoping won’t make it occur and so we are reducing the position to a more
bearable holding. We were overly aggressive on the buy side after our
successful trade last week. Greed got the better of us.

With these trades we are flat to about 10% net long in many large accounts but the
stocks we bought (NCR -15%) (STJ -20%) (CIEN -15%) are all down over the last
week or are defensive holdings (T and VZ).

*****

European shares finished higher with France, Germany and London up 1%.

*****

Oil ended up $1.93 at $71.46.
Gold gained $11 to $1055.
*****

Stocks closed higher and breadth was positive. Volume was
light. The bulls are still in control.*****

7 October 2009

Asian stock markets rose Wednesday with gold, energy and resource
stocks rising after commodities rallied. The Nikkei climbed 1.1% and China was
closed. European bourse indexes are mildly lower at midday. Gold is up at $1047
and Oil has a $71 handle as the trading day begins. Stocks are flat pre-opening
in the U.S.

*****

Investors’ Intelligence was 48% bulls and 24% bears in the latest week
down and up 1% from the previous week.

*****

Wells
Fargo plans to raise
interest rates on a majority of credit-card customers by 3 percentage points
before new rules limiting such increases take effect, according to a company
executive. “This is something we’ve been contemplating for quite a period of time,”
Kevin Rhein,
group head of card services for the San Francisco-based bank, said today in a
telephone interview.

WFC took $25 billion of
government money and is paying practically nothing for the money it borrows
because the Feds are keeping interest rates artificially low to help banks
recoup their losses from dumb loans.
*****

Gold closed at an all time high of $1045. Folks who bought gold during
the Hunt Fiasco of 1979 now have a profit to a double on their money after 30
years, excluding inflation and storage charges. Oil closed with a $69 handle.

*****

European stocks came off their
lows to trade modestly higher, after receiving a boost from a strong
basic-resources sector.
*****

Today was as dull as a trading
day can get. Most major measures except the DJIA were up small and volume was
light. Breadth was negative. The closing bell won the day.*****

6 October 2009

Asian markets were mixed and
Europe is higher. Gold hit $1035 on a
report that the Oil cartel is going to use gold as part of a basket of
currencies replacing the dollar as the means of exchange for oil. The
dollar is lower. Oil has a $71 handle.
*****

Reuters reported later in the
morning that big oil producing nations denied a British newspaper report on
Tuesday that Gulf Arab states were in secret talks with Russia, China, Japan
and France to replace the U.S. dollar with a basket of currencies in trading
oil.
*****

According to CNBC stocks are going to open higher on news that Australia's
central bank surprised markets with a quarter-point rate hike, becoming the
first of the Group of 20 members to raise rates.*****

Boeing is gin to take a $1
billion charge in its 747-8 freightliner program. General Mills was upped to
buy at UBS. Emerson Electric is buying Avocent for 1.2 billion cash. Apartment
vacancies in the U.S. rose to 7.8%, a 23-year high.
*****

St Jude Medical opened down $5 per share this
morning on an earnings warning and we bought shares for accounts at $33 for a
trade.*****

On September 30 a Goldman Sachs’ analyst gave a cautious
view on heart device makers on Wednesday, and rated shares of St. Jude Medical
Inc. at "Sell.". Very
prescient. JMP Securities initiated coverage of St. Jude on October 1 with
an outperform rating. Obviously the JMP analyst doesn’t travel in the same
circles as the Goldman guy.
*****

There is risk
taking and there is risk taking. This is risk taking.

*****

We sold the STJ at
$34.

*****

European shares posted their largest one-day rise in six weeks with
most bourse indexes up over 2%, as a record high for gold futures boosted
miners and a broker upgrade lifted the banking sector.*****

We added shares of
SH at $56.30. We also sold Ford at $7.15.

*****

Oil ended at $70.88 up 47 pennies
on the day. Gold gained a gillion to close at $1045.
*****

We bought a few shares of Ciena which is down 10% today on rumors that it is going to buy the
metro Ethernet business of bankrupt Nortel.
We think it is a good buy for them and that they can afford it. We bought for a
longer than one day trade and will add lower. CIEN is down 20% in the last few
days and our guess is that traders were buying stock over the last month on
takeover rumors and when the rumors had CIEN acquiring instead of being
acquired they were and are exiting. Volume today is ten times average daily
volume.*****

Barron’s report on the potential deal:

In a release yesterday, Ciena
acknowledged that it is holding talks about buying the Nortel unit.
The announcement came after the company
apparently inadvertently posted - and then took down - a news
release that said the company had a deal to acquire the Nortel unit for $400
million in cash and 10 million Ciena shares. (Would note that the release has been taken down, so it is hard to know
the current status of discussions.)

Here’s a quick look at some of today’s analyst commentary on the
promise - and risks - of such a combination:

Paul Silverstein, Credit
Suisse: He has a Neutral rating and $11 price target, which is below
yesterday’s close at $14.17. He says the proposed deal “poses near-term risks
to CIEN and its shareholders,” including the impact on net cash, integration
risk and potential EPS dilution. He also notes that there are other potential
bidders, including Ericsson (ERIC),
Nokia Siemens (NOK)
and Infinera (INFN).

Nikos Theodosopoulos, UBS: He says Ciena would go from a product story to a scale story; the
deal would add 1,300 people to the 2,100 at the company now, and add $1.4
billion in revenue to a base of about $750 million. It would also likely
move the balance sheet from a net cash position to one of net debt. He
maintains a Neutral rating and $14 target.

Tal Liani, Bank of America/Merrill Lunch: He maintains an Underperform rating and $10
price target. “We are mostly positive on the implications of such a deal long
term, but also see risks it offers,” including lower growth rates, a more
leveraged balance sheet and integration risks.

*****

Their opinions are why the shares
are lower. As long as we know why we are comfortable trading. That doesn’t mean
we will make money.
*****

Stocks gave up a half their first three hours gains at the
beginning of the contra hour but then rallied to the highs of up 140 on the
DJIA by 2:30 PM and held their 1.5% gains into the close.

Breadth was better than 3/1 to the good and the only
negative was that volume remained light. The bulls continue to smile.

*****

5 October 2009

As Goldman goes so go the markets. This morning Goldman upgraded the money center banks with mention of Wells Fargo and that has the markets in
a positive mood. Asian markets were lower in Sunday trading and mixed in Monday
trading. European bourse indexes are higher at midday and Oil has a $68 handle
which is $1.25 lower than Friday while Gold is at $1004, unchanged from
Friday’s close in NYC.
*****

We sold GE for
a plus scratch. Over the weekend we decided we want to own lower in the selloff
we see coming. Of course we have seen it coming for
four months but it will come.*****

Goldman Sachs stands to receive a payment of $1bn – while US taxpayers
would lose $2.3bn – if
embattled commercial lender CIT files for Chapter 11 bankruptcy protection,
people familiar with the matter said. The payment stems from the structure of a
$3bn rescue finance package that Goldman extended to CIT on June 6 2008, about
five months before the Treasury bought $2.3bn in CIT preferred shares to prop
it up at the height of the crisis. The potential loss for taxpayers would be
the biggest to crystalise so far from the government’s capital injection plan
for banks. … CIT declined to comment. In an effort to prevent bankruptcy, it is
working on a debt exchange offer that would virtually wipe out equity holders.
In the event of bankruptcy, Goldman would reap more than $1bn because it also
holds credit insurance that would be paid off. … – Financial
Times

We were reading a column by a
financial writer (Terry Savage who was on CNBC this morning) and she was
suggesting that investing in stocks was the way to go. As proof she wrote: Remember, going
back to 1926, there has never been a 20-year period where you would have lost
money in a diversified portfolio of large company stocks, with dividends
reinvested. Even adjusted for inflation.

Never mind that the mantra used
to be that the S&P 500 doubled every ten years. That went by the way side a
year ago as the S&P 500 at year end 2008 was actually lower than it was ten
years ago.

Now the mantra has become buy the
S&P 500 and twenty years from now if you don’t spend any money you may be
even. There may be good reason to buy stocks but the above reason is not one of
them.
*****

U.S. service industries expanded
in September for the first time in a year as the emerging recovery spread from
housing and factories to the broader economy. The Institute for Supply Management’s
index of
non- manufacturing businesses, which make up almost 90 percent of the
economy, rose to 50.9, higher than forecast, from 48.4 in August, according to
the Tempe, Arizona-based group. Fifty is the dividing line between expansion
and contraction. -Bloomberg
*****

From the boo birds: New York
University Professor Nouriel
Roubini said stock markets may drop and billionaire George Soros
warned the “bankrupt” U.S. banking system will hamper its economy, highlighting
doubts about the sustainability of the global recovery. “Markets have gone up
too much, too soon, too fast,” Roubini, who accurately predicted the financial
crisis, said in an interview in Istanbul on Oct. 3. U.S. stocks may suffer a
“major decline” after climbing to the highest levels in almost a year two weeks
ago, according to technical analyst Robert
Prechter, founder of Elliott Wave International Inc. -Bloomberg
*****

Mohamed El-Erian says economists
are wrong to dismiss unemployment as merely a lagging indicator, a sign of
where the economy has been. For the chief executive officer of Pacific
Investment Management Co., the 26-year high jobless rate is also an omen of
things to come. The climb in the September rate to 9.8 percent, double the
level at the start of last year, leaves the U.S. saddled with about 15 million
people out of work and with limited prospects. That will further hurt the housing
market and weigh on the wages of those still employed, threatening to undercut
the economic recovery, according to Mark Zandi, chief economist at Moody’s
Economy.com in West Chester, Pennsylvania. “Today’s unemployment rate is much
more than a lagging indicator,” said El-Erian, whose Newport, California-based
Pimco manages the world’s largest bond fund, in an e-mail after the Labor
Department report on Oct. 2. “It is also a signal of future pressures on
consumption, housing and the country’s social safety net.” The job market tends
to trail the economy in a recovery because companies hesitate to take on more
workers until they are convinced the expansion will last. What’s different this
time is the “large and protracted” rise in joblessness and the likelihood that
it will stay high for years, according to El- Erian. That means unemployment
will affect the economy going forward, not merely reflect where it has been.
-Bloomberg
*****

A consortium led by former executives at Ford Motor is in talks to buy
the auto maker's wholly-owned Volvo unit.-WSJ

We hope so because if the Chinese buy Volvo our purchase of these
wonderful cars will have ended at 12.

*****

Mineral extractors and telecoms helped European shares to advance for
the first time in four sessions.

*****

Oil settled at $70.05 up 45
pennies on the day after trading with a $68 handle early on. Gold finished at
$1016 up $12.
*****

The downtrend line from October 2007 is about to
intersect with the uptrend line from March 2009. Stay Tuned.

WellPoint, a health insurance company, which has encouraged its employees to lobby against health care reform,
is now cutting their benefits. The
insurance giant plans to raise deductibles and premiums for some of its
employee health benefits. "Your cost per paycheck will probably
increase," said a memo
to WellPoint employees that was obtained by Bloomberg News. The
company blamed the recession for the cuts. "Like many employers in today's
economic environment, we are looking at all aspects of our business,"
including benefits, "and making adjustments to ensure we can continue to
operate competitively in the future," wrote Chief Human Resources Officer
Randy Brown.

2 October 2009

Well Goldman got it right. Who
would have guessed? The Employment
Report said 260,000 jobs were lost in September and the unemployment rate
stood at 9.8%. The Street was
expecting 200,000 to 225,000.
*****

The major stocks measures are
down 1.5% o the news and overseas markets were also lower overnight. Chinese
markets remained closed for the celebration of the 60th anniversary
of the establishment of the Peoples Republic. They will have to play catch down
next week when they reopen. Oil has a $69 handle and Gold is $991.
*****

$75 before you even get into the game. What recession?

Parking. It’s one of those
secret, forgot-you-were-going-to-have-to-pay-it-until-you-have-to-pay-it
expenses that slowly drains your will to live and often keeps you from
venturing outside of your house and into the greater world at large. I particularly
despise parking because it comes at the end of your journey, when you have, in
theory, arrived at your destination. Only you haven’t. You gotta find a spot,
and you gotta pay dearly for it. And if you’re going to see the Cowboys this
fall, you’re really going to pay dearly for it. [There are] 115,000 potential
people in place, at a stadium that has precisely 12,000 spaces on site, all of
which cost up to $75 each. There are an additional 18,000 spots within a mile
of the new digs, also costing between $50 and $75... You could carpool, but
that’s for dirty tree huggers.*****

Because he did such a good job?

Fortune -- Ken Lewis doesn't have
a golden parachute, but he's all set for a comfortable landing -- unlike his
long-suffering shareholders.

The Bank of America chief
executive officer said Wednesday he'll step aside
at year-end after eight years at the helm. Based on the company's most recent
proxy statement, he will have $53 million in pension benefits waiting for him
when he leaves. That should give him about $3.5 million a year in pension
payouts for the rest of his life -- at a time when people who bought the stock
when he took the reins in 2001 are underwater on their investments.

Although the bank swore off
employment contracts and eliminated golden parachutes seven years ago, Lewis
can thank a pension plan that dates back decades for his rich retirement
rewards. Lewis also has $10 million in deferred compensation owed to him and
another $8 million in restricted stock and stock options as of Dec. 31 that
will continue to vest over coming years, according to the most recent proxy
filing.
*****

Diane Swonk, Chief Economist,
Mesirow Financial

Bridge to True Recovery Unstable

The economy is clearly in an
accounting or "technical" recovery, as Fed Chairman Ben Bernanke said
a few weeks ago. Much of the move from negative to positive territory, however,
is due to aggressive government spending and stimulus programs - the most
successful of which was the Cash for Clunkers program which reignited vehicle
sales over the summer.

We also have the
"advantage" of overshooting by drawing inventories down too low,
which could give us a "surprise" jump in growth for a quarter or so.

Any kind of self-feeding
recovery, however, requires job creation - something we are still desperately
lacking. Payroll employment contracted by another 263,000 jobs in September,
which represents a worsening in the pace of layoffs since the start of the
summer. More than 7 million people have lost their jobs since the start of this
recession. Over 15 million are unemployed. Some 5 million have been unemployed
for more than six months.

Most importantly, small
businesses, which have been the backbone of job creation for two decades, are
not hiring. The best single indicator of a more robust and self-sustaining
recovery will be when small businesses are willing to step back up to the plate
and hire.
*****

We bought Ford and
GE in accounts, both for a trade. Ford
beat by dropping much less on sales than the other auto makers and GE is in the process of getting rid of
at least part of NBC which was Jack
Welch’s toy when all was wonderful at GE in the 1980s and 1990s.*****

Blockbuster raised $675 million
in a bond offering? Who in their right mind would continue giving this company
money, especially at 11.75%. The company is getting
crushed by Netflix and Red Box. They are closing stores and fighting just to
survive at this point. Now I see Level 3 is coming with a convertible offering
with just a 7% coupon. The bonds are convertible into common at $1.80, a 50%
premium to the current stock price. This a company that already has over %6
billion in debt and lost $134 million last quarter.

I get the whole "we have
to get the money to work somewhere” thing but the risk reward of these
offerings borders on ludicrous in my opinion.

*****

S&P futures hit the 1014 guru support level before the opening but the cash S&P hasn’t
dropped below that number as of 1PM. the S&P 500 is back at 1028 testing
the 1031 guru first support number of
yesterday which is now resistance.*****

We bought backSH (short S&P ETF) this afternoon on the flattening of the
markets after the 100 point DJIA drop early today on the lousy Employment
Report. With this purchase we maintain our short bias except in the smaller
accounts that only own Ford.*****

European stocks fell, as investors booked profits and adopted a
cautious stance ahead of the key U.S. employment report.*****

Oil closed at $69.64 and Gold was
$1002.
*****

Stocks closed mildly lower and breadth was negative.
Trading was moderate. Today was a tie; stocks held for the bulls but the
economic numbers are making a bear case for a rest if not a sell off.*****

1 October 2009

Jobless claims were 551,000 which was worse than expected. Personal
Income and Personal Spending were better than. Asian markets were mixed with
China and Hong Kong closed for holiday. European bourse indexes are lower and
Gold and Oil are unchanged at $70.50 and $1008.
*****

News from WSJ: Bank of America
said late Wednesday that its controversial CEO Ken Lewis will step down at the
end of the year. Lewis has served as CEO and president since 2001. His
successor has not been named.

U.S. consumer spending soared
1.3% in August, the fastest increase since the post-9/11 shopping binge eight
years ago, the Commerce Department estimated. Spending on durable goods rose
5.3% in August as auto sales surged on the government's cash-for-clunkers
program. The clunkers program accounted for most of the increase in August, the
government said. The program ended in August, and most analysts expect that the
boost in spending was a one-time event.

--

Comcast denied a report that it had reached a deal
to buy General Electric's 80% stake
in NBC Universal.

--

Penske Automotive Group has ended its effort to buy the Saturn unit of GM, citing concerns
over the availability of future GM-made vehicles.*****

European shares kicked off the
fourth quarter on a down note as economic data continued to disappoint,
although Cisco's bid for Tandberg helped offset some negative sentiment.
*****

Irving Picard, a court-appointed
trustee who is recovering assets for Bernard Madoff's fraud victims, on
Wednesday unveiled new allegations against Palm Beach, Fla., investor Jeffry
Picower. In a court filing, Picard said Picower made about $7.2 billion in
profits that should be returned because the money belongs to other investors.
That figure is a $2 billion increase from what Picard asked to get back in May.
*****

Our guru has 1031 and 1017 as
initial support areas on the S&P 500.
*****

We sold SH for a
trading profit.*****

Oil closed flat and Gold lost a
few dollars to $1006.
*****

Is it serendipity that the day
the SEC begins a roundtable on whether to reestablish the Uptick rule the
markets tank?
*****

Stocks closed over 2%
lower. Breadth was 5/1 negative and volume was active. Down volume was
20 times up volume in the NYSE. Tomorrow brings the monthly employment report
the consensus is for a loss of 225,000 jobs. Reuters is reporting that Goldman
Sachs has upped it guestimate to 250,000 job losses
form 200,000.
*****

While we were
away:

29 September 2009

Overseas markets were mildly
lower on Tuesday.
*****

Securities regulators are
exploring new regulations for the multitrillion-dollar securities-lending
market, the first major step regulators have taken in the area in decades....
Securities lending is central to the practice of short selling, in which
investors borrow shares and sell them in a bet that the price will decline.
Short sellers later hope to buy back the shares at a
lower price and return them to the securities lender, booking a profit. Lending
and borrowing also help market makers keeps stock trading functioning
smoothly....

Another issue is how securities
lenders invest the cash collateral put up by borrowers. The lenders are
typically large institutional investors such as pension plans and mutual funds.
They work through agents that act as middlemen between lender and borrower.

Last year's credit crunch exposed
cases in which investors' agents placed collateral into risky pools of
securities that had big losses. That spurred lawsuits by investors against
agents. In some cases, the declines have been so severe that they undermined
years of profits. The California Public Employees' Retirement System reported
last month a loss of $634 million for its securities-lending program in the
year ended in March.

Wilshire Consulting said that
figure could end up as high as $1 billion, wiping away much of the $1.4 billion
that Calpers has earned from this since its inception more than 20 years ago.

(In an understatement) "We
are in the process of developing new policies to reduce risk and losses in the
program's reinvestment of collateral cash," said Calpers spokesman Brad
Pacheco.
*****

Walgreen said its fiscal fourth-quarter profit declined to $436 million
or 44 cents a share, from $443 million, or 45 cents a share, in the
year-earlier period. Sales in the quarter ended Aug. 31 rose to $15.7 billion
from $14.6 billion. Results included a 3-cent cost and 7 cents a share in
savings tied to the company's restructuring activities. Analysts had expected
Walgreen would earn 39 cents a share on sales of $15.7 billion.*****

U.S. commercial banks earned $5.2
billion trading derivatives in the second quarter of 2009, a 225 percent
increase from the same period last year, according to the Treasury Department. More
than 1,100 banks now trade in derivatives, a 14 percent increase from last
year. Four banks control the market: JPMorgan Chase, Goldman Sachs, Bank of
America and Citibank account for 94 percent of the total derivatives reported
to be held by U.S. commercial banks, according to national bank regulator the
Office of the Comptroller of the Currency. The credit risk posed by derivatives
in the banking system now stands at $555 billion, a 37 percent increase from
2008. "By any standard these [credit] exposures remain very high,"
Kathryn E. Dick, the OCC's deputy comptroller for credit and market risk, said
in a statement.

Home values in 20 U.S.
metropolitan areas declined less than forecast in the year ended in July, a
sign the housing slump that led to the worst recession in seven decades is
abating. The S&P/Case-Shiller home-price index
fell 13.3 percent in July from a year earlier, the smallest drop in 17 months,
the group said today in New York. Adjusted for seasonal variations, the gauge
rose 1.2 percent from the prior month.
*****

The FDIC is proposing that banks
pay forward their FDIC insurance premiums by three years to raise $54 billion
to replenish the insurance fund which is broke. That is called borrowing from
the future.
*****

Consumer Sentiment for September
dropped to 53 from 54 in August.
*****

Jeff Bagley at realmoney.com: It was one year ago today that the
S&P 500 and the Nasdaq both dropped about 9% each, following the failure of
the House to pass the proposed $700 billion bank bailout bill. It was the worst
one-day decline for both indices since the crash of 1987, lopping off about
$1.2 trillion in market capitalization from U.S. stocks. Ouch! Of course,
little did we know that there was much, much more pain still to come. But now,
just a year later, it hardly feels as if that day was real. And it's almost a
roundtrip: we are now only about 3.6% below the 9/29/08 close.

*****

Stocks closed lower
but not enough lower to scare the bulls or encourage the bears.

*****

30 September 2009

Stocks opened a bit higher and
then the Chicago Purchasing Managers Index came in lower than expected and
coupled with a more than expected ADP job loss number the markets decided to
sell off 1% at the end of the first hour of trading.

Asia was mostly higher as is
Europe at midday.
*****

U.S. real gross domestic product for the second quarter was revised to
a decline of 0.7% annualized from the earlier estimate of a 1.0% drop, the
Commerce Department said Wednesday.*****

John Crudele at the NY Post on Treasury Secretary Paulsen and Lloyd
Blankfein telephone communications on the two days when the financial system
was melting down last fall.

The secret to Goldman Sachs' good fortune

By John Crudele

Last Updated: 2:04 AM,
September 29, 2009

Posted: 2:04 AM,
September 29, 2009

SO, is this how Goldman Sachs
does it?

"It," of course, is
making gobs of money even when nobody else on Wall Street can.

And those profits then go into
outrageous bonuses to employees, which cause rancor on Capitol Hill and on Main
Street.

You've heard the old saying,
"it's not what you know, but who you know."

Goldman Sachs knows lots of
important people. That fact is indisputable, mainly because former Goldman
employees are scattered around the country, and the globe, in important,
decision-making financial positions.

But I'd like to make an addendum
to that old saying, which I'll explore for you today: Who you know is only
important if you can get them on the phone anytime you want.

Today's column is about Thursday,
Sept. 18, 2008.

It's also about the unparalleled
access that Goldman Sachs had to Treasury Secretary Hank Paulson,
whose mission -- according to his own words -- was to bring Wall Street and
market regulators (not to mention decision makers) together, so that they were
"seeing the same issues, the same problems and working toward the same
solutions." On Wednesday, Sept. 17, 2008 -- the day before the one I am
writing about -- the stock market performed horribly.

By the end of the session the Dow
Jones industrial average tumbled 449 points as investors worried about the
nation's financial system. The next morning, Sept. 18, Paulson placed his first
call of the day at 6:55 a.m., to Lloyd Blankfein, who
succeeded Paulson as CEO of Goldman. It's unclear whether the two connected
because Blankfein called Paulson minutes later.

And then Blankfein placed another
call to Paulson at 7:05 a.m. for what looks like a 10-minute conversation.

After that Paulson called Christopher
Cox, Securities & Exchange Commission Chairman twice; British
Chancellor Alistair Darling and New York Federal Reserve head
(and now Treasury Secretary) Tim Geithner two times.

Then Paulson took another call
from Goldman's Blankfein.

It wasn't even 9 a.m. yet -- 30
minutes before the stock market was to open -- and Paulson and Blankfein had
already exchanged three phone calls.

This wasn't particularly unusual.

On Wednesday, Sept. 17, the day
the stock market was in trouble; Paulson spoke with Blankfein five times,
including a pair of calls at 7:20 p.m. and 8:45 p.m. One of the earlier calls
-- at 12:15 p.m. -- is listed on Paulson's log in the same five minute interval
as a call to Geithner, which could indicate that this was a conference call.

If Paulson did set up a
conference call, it would have been an extreme instance of putting someone who
wielded a lot of power -- Geithner -- together with someone -- Blankfein -- who
could profit from that connection.

And all of this doesn't include
possible cell phone calls. The Treasury turned over to me Paulson's official
schedule and phone records after I made a request under the Freedom of
Information Act.

There's no way for me, or anyone
else, to know what Blankfein and Paulson talked about during those first three
calls on Sept. 18.

But it would be reasonable to
assume that the conversation, coming as it did in a period of market turmoil,
had something to do with what was happening on Wall Street.

So no matter how you slice, dice
or excuse it, Blankfein by 9 a.m. would have had information that was not
available to anyone else who makes their money trading securities. And, as you
can imagine, there is a whole lot of value in that kind of inside access.

Robert Scully, a
co-president of Morgan Stanley, called Paulson at 8:50 a.m. on the 18th.

But he appears to be the only
Wall Street-type who was in contact with Paulson until Larry Fink,
head of the private investment firm Blackrock, called
at 12:40 p.m.

By then the stock market was
going down again. But the decline wouldn't last long.

Stocks began a miraculous
recovery at 1 p.m. on Sept. 18, when rumors started to spread that Paulson was
considering a "government entity to bail out troubled banks" and that
a meeting was going to be held that night on the matter.

At 1:05 p.m. Blankfein called
Paulson again. Paulson would call Blankfein for the last time that day at 4:30
p.m. when he "left word."

That was the sixth time these two
men called each other on Sept. 18.

That's one time less than Paulson
spoke with Federal Reserve Chairman Ben Bernanke, arguably the
most important person when the financial markets are in trouble. But Bernanke
didn't get his first call from Paulson until 9:30 a.m. -- and it included Cox
and Geithner.

President Bush
only spoke with Paulson twice that day. To be fair, on the afternoon of Sept.
18 Paulson did call John Mack, head of Morgan Stanley (at 1
p.m.) and Merrill Lynch's John Thain(at 1:10 p.m.).

But Fink is the only one who
seems to have gotten through to Paulson anywhere near the time the market
started rallying.

By the end of the day, the Dow
was up 410 points in an astonishing comeback.
*****

We sold Kroger.
*****

Oil gained almost $4 today to
close with a $70 handle. And Gold was up $12 to $1007. Europe closed slightly lower.
*****

In 2004 auto companies sold
nearly 2.5 million pickups in the United States, many of which were used as
everyday transportation, not just as work trucks or to haul trailers. This
year, the industry likely will sell only about a million trucks.
*****

The DJIA was down 100
points at 10 AM but rallied throughout the day and by 2 PM was up 15 points.
The major measures then sold off in the final hour
only to but still closed lower on the day.

*****

Trivia:

The statistical discrepancy between Gross Domestic Product and Gross
Domestic Income is growing. That may be because the government massages the GDP
numbers while it does not try and massage the GDI number as much because few
folks in the media pay attention to it. For the second quarter GDP was negative
0.7% while GDI was negative 2.7%. The usual discrepancy is less than 1%.

The total market value of all
final goods and services produced within the political boundaries of an economy
during a given period of time, usually a year, as calculated using the income
approach to measuring gross domestic product. Gross domestic income (GDI) is
virtually identical to gross domestic product (GDP), with one minor difference,
the statistical discrepancy. As a matter of fact, the statistical discrepancy
is calculated as the difference between GDP and GDI.

The expenditure method leads to
gross domestic product. The income method leads to gross domestic income. In a
perfect world, where every calculation is accurate, no mistakes are made, and
all production and income are correctly identified, gross domestic product and
gross domestic income are EXACTLY equal. But in the imperfect real world, there
is almost always a discrepancy between these two measures. This discrepancy is
generally quite small, less than 1 percent of GDP.

Two Sides of the Market

Every market exchange
is a two-way process. The buyer trades money for a
good. The seller trades a good for money. The market exchange, and the value of the
good traded, can be identified from either side of the market--from the
expenditure made by the buyer or from the income received by the seller.

The
overall value of production, which is what GDP seeks to measure, is determined
mutually by buyers and sellers through such market exchanges. On one side of
market exchanges is the suppliers, producing and selling goods. On the other
side is demanders, purchasing and using goods. For each good sold, someone
buys. For each good bought, someone sells. The number crunchers at the Bureau
of Economic Analysis use this two-sided notion to derive a relatively accurate
estimate of total production (that is, gross domestic product) using total
income.

To
illustrate, consider the purchase of a Hot Momma Fudge Bananarama Ice Cream
Sundae by Duncan Thurly for $2. His demand-side of the transaction involves
giving up $2 and getting (and presumably enjoying) a Hot Momma Fudge Bananarama
Ice Cream Sundae. However, from the supply-side of this transaction, the Hot
Momma Fudge Bananarama Ice Cream Shoppe receives the $2 in payment for
producing the Hot Momma Fudge Bananarama Ice Cream Sundae. If the store does
not produce, then Duncan does not buy. And if Duncan does not buy, the store
does not produce.

As
such, a reasonable estimate of Hot Momma Fudge Bananarama Ice Cream Sundae
production can be derived by adding up the revenue received by the Hot Momma
Fudge Bananarama Ice Cream Shoppe and how the revenue becomes income of the
productive resources. This is gross domestic income, which in principle is
equal to gross domestic product.

What Makes Up GDI

Gross
domestic income (GDI) can be divided into an array of different components.
First, consider a summary equation of GDI, then next a more detailed discuss of
each item.

Compensation of Employees: The
official measure of wages earned by the household
sector for supplying labor services.
It includes standard wages and salaries paid directly to employees, as well as
fringe benefits paid on behalf of employees to third parties.

Net Interest: The official
measure of interest earned by the household sector for supplying capital
services. It is revenue generated from borrowed funds but is considered payment
for the productive services of capital.

Rental Income of Persons: The
official measure of rent earned by the household sector for supplying land and related services.
It includes payments for the use of land, natural
resources, and capital goods attached to the land.

Corporate Profits: The total
accounting profits
received by corporations, which is the official measure of profit earned by the
household sector for supplying entrepreneurship
services through corporations.

Proprietors' Income: The excess
of revenue over explicit production cost of owner-operated businesses which
includes payments to all factors of production--labor, capital, land, and
entrepreneurship.

Indirect Business Taxes: The
official term for sales taxes.
They are termed INDIRECT business taxes because the business sector is only
acting as the "collection agency" for the government, collecting the
taxes from the household sector.

Business Transfer Payments:
Subsidies, or gifts, made from the business sector to the household sector. It
includes outright gifts (such as student scholarships), and more importantly,
accounting adjustments for unpaid debts of the household sector.

Net Foreign Factor Income: The
difference between factor
payments received from the foreign
sector by domestic citizens and factor payments made to foreign
citizens for domestic production is termed net foreign factor income. This is
also the key difference between gross DOMESTIC product and gross NATIONAL
product.

Government Subsidies Less Surplus
of Government Enterprises: Government subsidies are transfer
payments from the government
sector to the business sector which are NOT payments for current
production. These subsidies are adjusted by the current surplus of
government enterprises, which is the "profit" of government run
business activities.

As
suggested by the number of items presented here, calculating gross domestic
income is very much a bottom-up approach. In essence, the measurement of GDI is
based on identifying the individual expenses incurred by the business sector in
the production of good and services.

The first five items listed are
the factor payments that make up national income. The next five items reflect
differences between gross domestic product and national income. Of course, the
only adjustment item NOT included in this list is the statistical discrepancy.

The Statistical Discrepancy

In
principle, gross domestic product SHOULD be exactly equal to gross domestic
income. In reality, these two measures do not yield identical results. They
should, but they do not. The statistical discrepancy is used to ensure that everything
balances. It is the official adjustment factor in the National Income and
Product Accounts that ensures equality between the gross domestic product and
gross domestic income and it is usually relatively small, less than 1 percent
of gross domestic product.

The
statistical discrepancy is officially "added" to gross domestic
income when calculating gross domestic product, but the actual value can be
positive or negative. The value of the statistical discrepancy is whatever it
needs to be to equate the income and expenditure approaches to measuring gross
domestic product.

This
equation summarizes the connection between gross domestic product (GDP), gross
domestic income (GDI), and the statistical discrepancy (SD):

GDP

=

GDI

+

SD

*****

NYT: The top military commander in Afghanistan, Gen. Stanley
A. McChrystal, rejected
calls for scaling down military objectives there on Thursday and said
Washington did not have unlimited time to settle on a new strategy to pursue
the eight-year-old war. In a speech to the International Institute for Strategic Studies, a private policy group here, General
McChrystal said that the situation in Afghanistan was serious and that “neither
success nor failure can be taken for granted.” He was speaking in Britain —
America’s close ally in Afghanistan — a day after he had participated by video
link from London in a White House strategy session on the war that included President
Obama, Vice President Joseph
R. Biden Jr. and an array
of senior advisers.

And so our question is,” why he
is he not in Afghanistan running the war, instead of giving speeches to private
groups in Britain? Was he on leave?”
*****

THE OFFICE OF THE ATTENDING PHYSICIAN....
From time to time, we're reminded of the fact that members of Congress -- many
of whom are fighting to kill health care reform -- give themselves pretty good
coverage. Several weeks ago, the LA Times
reported on the taxpayer-subsidized insurance federal lawmakers
currently enjoy.

The piece noted that, while most
Americans have to go with whatever their employer offers, members have a choice
of 10 plans that offer access to a national network of doctors. "Lawmakers
also get special treatment at Washington's federal medical facilities and, for
a few hundred dollars a month, access to their own pharmacy and doctors, nurses
and medical technicians standing by in an office conveniently located between
the House and Senate chambers," the article added.

This fall while members of Congress toil in the U.S. Capitol, working
to decide how or even whether to reform the country's health care system, one
floor below them an elaborate Navy medical clinic -- described by those who
have seen it as something akin to a modern community hospital -- will be
standing by, on-call and ready to provide Congress with some of the country's
best and most efficient government-run health care.

Formally called the Office of the Attending Physician, the clinic --
and at least six satellite offices -- bills its mission as one of emergency
preparedness and public health. Each day, it stands ready to handle medical
emergencies, biological attacks and the occasional fainting tourist visiting
Capitol Hill.

Officially, the office acknowledges these types of services, including
providing physicals to Capitol police officers and offering flu shots to
congressional staffers. But what is rarely discussed outside the halls of
Congress is the office's other role -- providing a wealth of primary care
medical services to senators, representatives and Supreme Court justices.

Through interviews with former employees and members of Congress, as
well as extensive document searches, ABC News has learned new details about the
services offered by the Office of Attending Physician to members of Congress
over the past few years, from regular visits by a consulting chiropractor to
on-site physical therapy.

"A member walked in and was generally walked right back into a
physician's office. They get good care. They are not rushed. They are examined
thoroughly," said Eduardo Balbona, an internist in Jacksonville, Fl., who
worked as a staff physician in the OAP from 1993 to 1995.

The Office of the Attending
Physician includes at least four Navy doctors as well as at least a dozen
medical and X-ray technicians, nurses, and a pharmacist. When a specialist is
brought in, members pay no additional costs.

Indeed, lawmakers receive
top-notch, wait-free care, and money is largely no object. Members pay a flat
annual fee of $503, and it covers all expenses -- without submitting claim
forms to their insurer. Despite soaring costs throughout the health care
system, prices have been largely stagnant in the Office of the Attending
Physician for 17 years.

Some lawmakers didn't pay the fee
and still took advantage of OAP services.

Keep this in mind the next time
you hear a member of Congress complaining about the nightmares of
government-run, taxpayer-subsidized health care.
*****

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